IRS Clarifies Deductibility of Business Meals in 2018 and Beyond by Jeffrey M. Mutnik, CPA/PFS
Posted on November 14, 2018 by Jeffrey Mutnik
The Internal Revenue Code allows a deduction for 50 percent of the cost of a meal at which business is discussed. The language contained in the 2017 Tax and Cuts and Jobs Act reforming the U.S. tax code appeared to imply that businesses could no longer deduct expenses for client meals enjoyed at entertainment events, such as sporting events, concerts, theatrical performances, golf and fishing outings, and cruises. According to the IRS, however, businesses can continue to take advantage of this valuable tax break in 2018, even when they cannot write off the costs of the entertainment activities.
In its most recently issued guidance, the IRS said that companies can continue to deduct 50 percent of the costs they incur for meals with clients at entertainment events, as long as those meals are not lavish, and they are considered ordinary and necessary for the active conduct of the taxpayer’s trade or business. The only other criteria businesses must meet to qualify for the 50 percent meal deduction is to have a receipt demonstrating that they paid for the meal separately from all other entertainment-related expenses, which, in and of themselves, are no longer deductible under the new law.
For example, if a businesswoman treats a client to tickets to a baseball game where she also buys the client a hot dog and drinks, she may not deduct the entertainment expenses of the tickets. However, she can deduct 50 percent of the costs for the food and drinks purchased separately. Yet, if a businessman invites a prospective client to join him at a suite at a basketball game where food and drinks are provided, both the tickets and the food are considered entertainment expenses that are not deductible under the law. The only way the taxpayer can deduct half of the food and beverage expenses is if he has an invoice separating out those costs from the non-deductible entertainment costs of tickets.
About the Author: Jeffrey M. Mutnik, CPA/PFS, is a director of Taxation and Financial Services with Berkowitz Pollack Brant Advisors and Accountants, where he provides tax- and estate-planning counsel to high-net-worth families, closely held businesses and professional services firms. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at firstname.lastname@example.org.
Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.